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For most benefactors, building an estate is a lifelong endeavour with the hope that it will one day make a positive impact on the next generation, or a favourite charity, or both. But what about actually seeing the fruits of your labours while you’re still living?

It’s an appealing idea for a number of Canadians, according to our study of trends in giving and inheriting wealth among high net worth individuals (see the Wealth Transfer Report for highlights.) Almost one-third, or 30 percent, of Canadians surveyed plan to give gradually during their lifetimes, while 54 percent intend to pass on all their assets upon death. For those who intend to wait, the need to ensure they have adequate funds for a comfortable retirement ranks as the top reason.

Finding the balance between funding retirement and passing on one’s estate is a common challenge, particularly among retirees and pre-retirees. “The question is, can they do this during their lifetime, while still maintaining their lifestyle and seeing the benefits of their gifts,” says Abby Kassar, Vice-President of High Net Worth Planning with RBC Wealth Management in Toronto. Here are three key considerations for anyone thinking about how to allocate enough for their golden years while also giving to charity and their loved ones.

1. Determine what you need

People often hold back due to worries about having enough for a comfortable retirement, like Harry, an 80-something retiree who said, “I have a good pension, but I am reluctant to give it all away – in case of falling on hard times.” More than half of Canadians who plan to pass on their wealth upon death or illness cited either a need to “fund the lifestyle I want” (32 percent) or concerns about “having enough to give away gradually to inheritors” (24 percent) as their reason for waiting.

Gaining a thorough understanding of your retirement needs is critical to effective wealth planning. A minority of Canadians surveyed who plan to transfer their wealth upon death (only 8 percent) are actively engaging the help of a professional or financial advisor. “You need to determine whether you can meet your retirement goals and still make the charitable gifts you want to make,” says Kassar. 

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“The best way to do that is to have a comprehensive financial plan that will allow you to do stress tests to see how much an increase in your spending, or a market downturn, will negatively impact your wealth,” she says. This means taking into account your lifestyle expectations, travel goals, probable life expectancy and rising health care costs as you age. “People need to consider that they’re likely going to have many more years to enjoy during their retirement,” says Kassar.

2. Plan the legacy you want

Using a ‘giving while living’ strategy – in which people gradually start gifting assets during their lifetimes – enables one to have greater control over how and when the assets are transferred. It can also help strengthen a family legacy, as benefactors have the opportunity to consult with beneficiaries about how their gifts should be used. “It allows the parents to evaluate how well the kids can manage wealth, and if any additional wealth would be managed properly,” says Kassar. “If not, it can be controlled using a trust or other structure.”

There may also be tax benefits to reducing the size of an estate gradually. While Canada has no estate tax, it does have probate fees and certain income taxes, which are applied upon death and calculated based on the size of the estate. Understanding the tax implications can help benefactors tailor their estate planning to maximize the assets they pass on to the next generation.

Likewise, capital gains taxes can be a considerable expense to one’s estate, as non-registered assets are deemed to be disposed of at fair-market value on death, says Ilana Lipkin, a Financial Advisory Consultant at RBC Wealth Management in Toronto. “You could have significant income inclusions, which could put you into the highest tax bracket in the year of a loved one’s death,” she notes.

Passing on securities and property to a beneficiary earlier will also have tax implications, but they are likely to be smaller, and may be spread out over time. “You do incur taxes now, but future gains will be taxed in that child’s hands, so you are putting a cap on how much tax you will ultimately pay on that asset,” says Lipkin. With a cash gift of Canadian dollars, there are no taxes, unlike in the United States, which has a gift tax. For those interested in giving to a charity, such donations may generate a tax credit that can be used to reduce your taxes.

Another key benefit of giving while living is that it gives parents an opportunity to transfer their knowledge and educate the next generation on sound financial management. Benefactors can use estate planning to impart their financial values by having regular conversations about how they want their children and grandchildren to carry on their legacy, or by using specific structures to demonstrate how the next generation can be a steward of their wealth.

3. See your estate in action

A common concern is that giving while living may create a sense of entitlement among inheritors or strip them of their motivation to work. This can be offset by using estate planning strategies to encourage the younger generation to build their own wealth and give them a boost along the way. For instance, parents can set up a trust that will disperse funds incrementally and reward inheritors for reaching certain milestones.

“Some parents structure the gifts so that they are disbursed at specific milestones, such as completing post-secondary education, getting married, buying a first home, or reaching a certain age,” says Kassar. As the children become more mature and reach specific goals, this approach can ensure they remain motivated. Another option is to give a targeted gift, such as a down payment on a home, or financial assistance to start a business. This will give your heirs a leg up, and also entrust them with something that requires their attention and strengthens their sense of responsibility.

“Giving while living allows the parents to see how the gifts have helped their children, and it gives them the satisfaction of witnessing how they’re giving their children a head start financially,” says Kassar. These decisions are all part of setting up a comprehensive wealth transfer plan that takes into account the specific wishes of the parents, and ensures they leave the legacy they want.

With thoughtful consideration and advance planning, it’s possible to enjoy a comfortable retirement and start transferring your assets at the same time. Ultimately, there are numerous reasons to begin the wealth transfer process during one’s lifetime. Perhaps the best reason is to not only have a plan to put your estate to good use, but to actually see it happen.